Can My Offer on a House Be Contingent on Financing?

Financing contingencies protect buyers as they attempt to purchase a home.

On the front page of every real estate purchase contract are paragraphs outlining the specifics of the buyer's commitment. A vital clause is one that covers financing. If you plan on applying for a mortgage, the financing clause helps to secure your deposit in case you're denied a loan or the terms of the loan are unacceptable.

Financing Application

Certain real estate contracts state that the buyer must apply for financing within a minimum period of time, usually five days. If the buyer doesn't apply for a loan within that time frame, he's “out of contract,” and the deposit is retained by the seller.

Financing Approval

Once a mortgage application has been started by the buyer, there can be up to a 30-day wait for approval. The buyer indicates on the purchase contract the spread of interest rates she's willing to accept or if she agrees to accept a mortgage based on the “prevailing interest rate given the buyer’s creditworthiness.” If an acceptable mortgage is offered but the buyer reneges on the purchase contract, her deposit is retained by the seller. If financing at an acceptable rate isn't obtained, the buyer can pull out of the purchase contract and be refunded her deposit.

Mortgage Commitment

Once a mortgage commitment has been made by a lender and the information is recorded by both the seller’s and the buyer’s agents, the financing contingency is considered fulfilled. The contract of sale is no longer able to be cancelled under the financing contingency; however, there may be other contingencies still in place in the purchase contract.

Funding Contingency

A lender may give approval for a loan, but by the time the loan is due to close, it’s possible for the lender to pull out of its commitment, leaving the buyer exposed. Including a funding contingency in a purchase contract ensures that the buyer’s deposit is returned if funding isn't fulfilled.

Non-Appraisal

Lenders appraise a property prior to issuing a loan. If a property appraises below the purchase price, the seller and the buyer must renegotiate the price to satisfy the lender. If terms can't be reached, the contract will be cancelled and the buyer’s deposit refunded.

Lock-Rate Expiration

Once a lender has given loan approval and the interest rate is stated, that rate is locked in for a specific amount of time. If issues arise that delay the closing during that “locked-rate” period and the interest rate then expires, the buyer can withdraw from the contract and have his deposit refunded.

About the Author

Jann Seal is published in magazines throughout the country and is noted for her design and decor articles and celebrity *in-home* interviews. An English degree from the University of Maryland and extensive travels and relocations to other countries have added to her decorating insight.